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TMI Blog1967 (5) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... aling with an application under s. 391 of the Companies Act? The remaining question on this application is concerned with the merits and demerits of the scheme proposed under s. 391 of the Companies Act. It will be appropriate to set out the main facts relevant for the purpose of the determination of the points involved in this application. This is essential because there are numerous papers, petitions and affidavits and it is necessary that the main facts and features of the case should be clearly under focus. 2. The applicant is the Rivers Steam Navigation Company Limited. This Company was incorporated in England on or about July 10, 1914 as a company limited by shares. The authorised capital of the company is $ sterling 728325 divided into 1,00,000, 6% non-accumulative Preference shares of $ sterling 1 $ each and 6,28,325 Equity shares of $ steeling 1 $ each. The 1,00,000 Preference shares were issued and are all fully paid up. But out of the said 7,28,325 Equity Shares issued, 1,57,985 are fully paid up and the balance 4,70,340 Equity Shares are paid up to the extent of 15 shillings each. The total amount of capital paid up or credited as paid up on December 31, 1965 is $ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Government's position as a creditor of the Company is plain. It has lent and advanced large sums of money. First, there is a mortgage dated 23rd December 1958 for ₹ 30 lakhs. Secondly, there is a mortgage dated the 2nd May 1961 for ₹ 1 crore. Thirdly, there is a mortgage dated 22nd May 1961 for another crore. Fourthly, by an agreement dated the 12th June 1963 the Government of India accepted the liability of the Company in lieu of the liability of another Company, India General Navigation and Railway Company Limited and that the balance of the amount payable under the said Agreement dated the 2nd May 1961 was to be advanced to the Company viz., Rivers Steam Navigation Company Limited. Fifthly, there was another Agreement dated the 15th May 1964 for ₹ 60 lakhs of the various lands, buildings, factories, sheds both in West Bengal and Assam including the Dockyard were hypothecated and charged in favour of the Government. The whole of the Company's fleet of vessels was under a floating charge. Sixthly, there was a further mortgage dated 22nd July 1966 to the Government of India for ₹ 141 lakhs in respect of the Company's present and future debts et ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in this Court for recovery of ₹ 1.5 crores and have obtained a similar order for the appointment of a Receiver. In both cases it has been agreed that the Receiver will not take possession of properties until the order for winding up is made. 11. The position, therefore, is indisputable that the Company is in a great financial difficulty. Normally a Company in such a position would be regarded as a Company unable to pay its creditors and will attract the misfortune of winding up. 12. That misfortune happened in this case. On the 21st June 1966 an unsecured creditor by the name of J. S. Desai and Company presented a petition for winding up of this Company. Even advertisements of this petitioner for winding up were issued and published on the 3rd August 1966. That application for winding up is pending for disposal in this Court. This firm of J. S. Desai and Company for which Mr. S. C. Sen appeared has been the main opponent of this scheme. It may be stated here that this firm of J. S. Desai and Company claims to be an unsecured creditor for the sum of ₹ 8,06,020.74 paise alleged to be due for the balance of price of coal and hard coke sold and delivered to the Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not all frozen by mortgage, hypothecation or otherwise. In this context the Government of India decided to set up a new rupee company for this purpose. It is stated that this new Company is incorporated in the name of Central Inland Water Trans port Corpn. (sic) which have been filed before this Court and which may be kept on the records of these proceedings. It is said in paragraph 17 of the petition that the new Company would be prepared to take over the debts which are adequately covered and secured by sufficient properties and assets of the Company. It is asserted that the maintenance of the river transport in Assam and West Bengal is a strategic necessity and is of national importance even though it may be uneconomic to do so strictly from business or commercial point of view. This point raises a question of some importance. This Company, Central Inland Water Transport Corporation Limited was incorporated on the 16th February 1967 and is a Government of India Company with an authorised capital of ₹ 4 crores. 17. The main reason for the proposed scheme is that unless some compromise or arrangement with the creditors and members is effected serious consequences will f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orm and content of the compromise are set out in paragraph 22 of the petition. It is as follows: (1) A new Government of India Company will be incorporated within about six weeks with a Memorandum and Articles of Association amongst others with power to acquire the property and assets of the existing Company with sufficient capital fixed by the Govt. of India (hereinafter called the New Company ) (2) The Rivers Steam Navigation Co. Ltd. (hereinafter called the Existing Company ) will transfer to the new Company all its properties and assets. Uncalled capital amounting to $ 117,585 or ₹ 24,69,285 will be paid in rupees by the Government of India to the existing company. (3) The new Company will undertake all the liabilities of the existing Company in favour of the State Bank of India and the Govt. of India will accept the new Company as its debtor in place of the existing company and will release the existing company from all its liabilities in respect of its said debts. (4) The amount due to the Chartered Bank for principal, interest and costs which forms the subject matter of a suit No. 1730 of 1966 (The Chartered Bank v. Rivers Steam Navigation Co. Ltd.) or ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;ble Court may think fit to make. 21. In course of these proceedings for approval of the scheme the Court ordered on the 14th December 1966 three separate meetings of the members secured creditors and unsecured creditors. They were held on the 30th January 1967 at No. 4, Fair-lie Place, Calcutta which is the principal place of business of the Company to consider and pass the proposed scheme with or without modification. Sir Dhiren Mitra and failing him Mr. M. N. Banerjee, Barrister-at-Law was appointed as the Chairman of the said meeting and report the result of such meeting to this court. Sir Dhiren Mitra having died, the meeting was duly held, under the Chairmanship of Mr. Banerjee and the Chairman's report has been duly filed in these proceedings. 22. The meeting of the members of the Company was attended by two members in person and 8 members by proxy and the total value of their share holdings was $ sterling 7,27,325-0-0. The Chairman's minute shows that it was resolved unanimously that: The scheme of arrangement submitted to the meeting and initialled by the Chairman thereof be and the same is hereby approved and agreed to. 23. The other meeting of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oor Sabha, Calcutta. Learned counsel Mr. S. B. Mukherjee appeared for Kilburn Employees' Co-operative Credit Society Limited, which was supposed to have lent moneys to the workers of the company and which loans were recoverable from their salaries and provident fund. Mr. Mukherjee was vicariously interested in labour for his real interest was that of a money lender to the labour and he has only a Mahajan's interest to see that the money lent to the worker was sufficiently secured. I do not think that Mr. Mukherjee can be said to represent labour's interest at all. I am satisfied that Kilburn Employees' Cooperative Credit Society Limited has no locus standi to intervene in this application either on technicality or even on its merits because- (i) the Kilburn Employees Co-operative Credit Society Limited was primarily concerned with Kilburn and Company Ltd. - quite a different company and a legal entity and it is no good saying that in its operation, its associated companies like the applicant company and others are affected. (ii) the position of this Credit Society Limited is really that of a middleman money lender, to the workers, and I therefore consider inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Court directs that the deletion be effected in clause 2 as proposed by the counsel for the Government of India. 28. On behalf of the new Company-Central Inland Water Transport Corporation Limited the learned counsel Mr. Das supported by the learned Advocate General for the company have given to the labour and the staff of the applicant company following assurances which must be recorded here : The new company will employ such of the workers and staff of the existing company as are considered by it suitable and necessary for its business on proper terms and conditions to be decided by the new company. The employees of the existing company who are so absorbed by the new company will be paid by the existing company all compensation due and payable to them under the law. If, as a result of the growth of business, the new company requires additional hands, the employees of the existing company who are not absorbed now will, if they are willing and otherwise found suitable, be considered preferentially as and when the occasion arises. 29. The other guarantee for the interest of the labour, workers and the staff is contained in paragraph 19 of the petition for sanction of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany Limited, incorporated in U. K. The learned Advocate-General takes shelter under what I call this doctrine of Purdah in Company Law and relied on: the observations of Hidyatullah, J. of the Supreme Court in (1) The St. Trading Corporation (India) Limited v. Commercial Tax Officer. AIR 1963 SC 1811 at page 1835; (2) Between Vale Urban District Council v. South Wales Traffic Area Licensing Authority, (1951) 2 KB 366 at pages 373-74; (3) Tunstall v. Stigmann, (1962) 2 QB 593; laying down the proposition at page 600 that it was decided in Salomon v. Salomon and Company Limited. 1897 AC 22, that a company and the individual or individuals forming the company were separate legal entities, however, complete the control might be by one or more of those individuals over the company. That is the whole principle of the formation of limited liability company and it would be contrary to the scheme of the Companies Act to depart from the principle , (4) Andhra Pradesh State Road Transport Corporation v. Income Tax Officer. Hyderabad, 52 ITR 524, where the Supreme Court of India at pages 532-33 and 536 laid down the same principle. 33. This argument of the learned Advocate-General leads a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erce the veil applies only to courts. It only means this that so far as the courts and the outside world or the dealing public are concerned the corporation or the company as such is a separate legal entity, apart from and independent of its members. But I am unable to accept this prohibition against piercing the corporate veil where a statute is concerned. A statute can pierce the veil and if it does, then the courts must see through the pierced veil. The rule of Chivalry not to lift the veil binds the court but does not bind the statute. Here section 617 of the Companies Act says that where the Government holds not less than fifty-one per cent shares of the paid up capital of the company it is a Government company. Court must apply this test. In applying that test the court is not piercing the corporate veil any more but the statute has already done it for the courts and has enjoined by statutory definition that such a company is to be regarded as Government company. The veil, therefore, stands exposed and lifted by the statute itself To ignore this specific definition of section 617 of the Companies Act and take shelter under the purdah doctrine of the Company Law, not to lift t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion in the present cases is charged with special legal difficulties because of the fact that the company is really caught in a period of transition. It was to start with an ordinary company limited by shares, incorporated in London with private share holders and private Boards of Management with interest of certain families such as, I am told of Lord Inchcape pre-dominating. In the many vicissitudes which this company had to go through in recent times and in the circumstances mentioned above, a majority of the shareholding came to be held by the Government of India. In other words, here is an ordinary private or a public limited company in the process of being acquired by the Government of India and caught at a stage where more than 70 or 80% of the shareholding has been owned by the Government of India. The question is whether nationally or in jurisprudence, at any stage or time, there was a metamorphosis of this company from the private or public limited company status to that of a Government company within the meaning of the Companies Act, 1956. Having regard to the definition in section 617, the court cannot but register the fact that at the present moment it is a Government c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the notification shall not apply to any Government company or shall apply to any Government company with such exceptions, modifications and adaptations as may be specified in the notification. There are certain sections which cannot be modified, viz.. sections 618, 619 and 639. Therefore, it is argued that section 391, under which a scheme can be sanctioned by the court, can be modified. In other words, the Government by notification may say that section 391 shall not apply to a Government company. In that view, it is contended further that any scheme that this court might order may be set at naught by notification by the Government under section 620 of the Companies Act. Then it is said that this court should not act in vain by making an order for a scheme or even making an order which could be imperiled by mere executive notification of the Government of India. 41. Now, the Government of India has so far not made any such drastic notification to alter section 391 for a scheme or section 443 dealing with Court's power to make an order for winding up. The reply given is that although it has not made such a notification so far, in fact it has that power in law and can do it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... metimes had to face temporary difficulties which, even though they were acute in nature, could be overcome after passage of time provided the Company could survive the stress in the meantime. 44. That is the reason why Courts, in course of time, came to be clothed with power to sanction a scheme or arrangement for compromise between the company and its members or creditors to avoid winding up and extinction. In that light it has been contended with considerable force in these proceedings that a Government Company by its very ideas and nature cannot be a suppliant for that kind of favour, for it normally does not lack funds and that it has not the same handicap of a private or a public limited company to raise funds or capital or to meet creditors or to carry on the management specially when the over helming majority, if not the whole body of share-holders is the Government itself. 45. This argument requires consideration. The statutory origin or history of court's power for sanctioning schemes or compromise or arrangement between company and its creditors and shareholders is argued to preclude the idea of applying the whole concept of scheme or compromise to a Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e features of a business company, and standing outside the ordinary framework of central and local Government. and again : Two different techniques of nationalisation were followed in the period 1945-49. One was to set up a corporate body. This was the method followed for the nationalisation of coal-mining, electricity, gas, railways, airlines and road transport. * * * * * The other technique was the compulsory acquisition of shares. The shares might then either be vested by the statute in a public corporation, as the shares in iron and steel companies were vested in the Iron and Steel Corporation, or else they might simply be held by the Government, as was the case with the nationalisation of the Bank of England, in either event, the control of the undertaking was then secured through the operation of the ordinary rules of company law. In Dr. Yardley's recent work A Source Book of English Administrative Law published by Butterworths, 1963 edition at page 357 this point is put clearly in these terms: As will be seen from the subsequent analysis, the two types of public corporation differ greatly in regard to ministerial control, finance and probably also judicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what is contained in sections 224 to 233 of the Companies Act relating to audit and appointment of auditors with regard to public and private companies generally. Similarly section 620 of the Companies Act, which I have already mentioned, is a special feature of the law relating to the Government companies. Thirdly, no doubt that certain sections of the Companies Act relating to Government control of ordinary companies in respect of investigation etc. such as are contained in sections 234A, 235, 236, 237, 408, 409 and 463 of the Act may be inappropriate for Government companies because the Government cannot itself investigate its own companies and be a judge in its own cause. Analysing and scanning these special features the conclusion is irresistible that these features do not make the Government company any the less a company. These special features are to some extent natural and inevitable in the context of a Government company. The genus remains that of a company even though the species may be different just as there are different Companies with different Articles of Association. 48. But I do not read these various sections which I have just mentioned and discussed to lead ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpression 'company' means any company liable to be wound up under the Act . The contention is that the Government company is not liable to be wound up under the Act. I am unable to accept this contention that the Government company is not liable to be wound up under the Companies Act. Having regard to Sections 390 and 391 of the Companies Act any company liable to be wound up under the Act can apply for sanction of a compromise, scheme or arrangement with its creditors or members, part VII of the Companies Act dealing with winding up gives no specially limited definition of company liable to be wound up and is in sharp contrast to the special definition of company in part VI, chapter V, section 390 of the Companies Act dealing with arbitration, compromises, arrangements and reconstructions . Chapter II of part VII of the Companies Act and section 433 thereof provide that a company may be wound up by the court under the circumstances mentioned there. Section 433 of the Companies Act does not provide any special limited definition of the word Company as in section 391 of the Act. The significant expression in section 617 of the Companies Act defining Government company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Indian Companies Act but is not exhaustive. For instance S. 583 (1) of the Companies Act makes all the provisions of this Act in respect of winding up applicable to unregistered Companies which cannot ex-hypothesis have a registered office within the meaning of S. 10, of the Companies Act. A foreign company with foreign incorporation is therefore liable to be wound up by this High Court notwithstanding S. 10 of the Act. This is plain from s. 583 (2) of the Companies Act which expressly enlarges the concept of the registered office as founding jurisdiction of the High Court by providing For the purpose of determining the Court having jurisdiction in the matter of winding up, an unregistered company shall be deemed to be registered in the State where its principal place of business is situate, and the principal place of business situate in that State in which proceedings are being instituted, shall for all the purposes of winding up. be deemed to be the registered office of Company . It follows that the statutorily deemed registered office in such a case is the principal place of business and this statutory fiction or enlarged definition of registered office must be read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that a company under section 391 means a company liable to be wound up under the Act and a foreign sterling company was argued not liable to be wound up under the Companies Act. For the same reasons stated above, I reject that contention. As already pointed out, section 390(a) of the Companies Act expressly says that the Company under section 391 means a Company liable to be wound up under the Act. I have no hesitation or doubt in my mind that a foreign sterling company incorporated in the United Kingdom, or for that matter any foreign company with foreign incorporation but doing business here, is liable to be wound up here under the Companies Act in this court. 56. Before discussing some of the authorities on this point, on which reliance has been placed in the course of arguments at the Bar. I shall just analyse the relevant statutory sections on the point. Part XI of the Companies Act deals with Companies incorporated outside India. I have already quoted the definition of foreign companies in section 591 of the Companies Act. All that this section says is that sections 592 to 602, both inclusive, shall apply to all foreign companies . The sections that follow section 591, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies on a business. I shall briefly refer to a Supreme Court decision cited at the Bar. The case decided by the Supreme Court in (8) Guru Gobinda Basu v. Sankari Prasad Ghosal, reported in (1964) 2 SCA 188 turns on the question whether a person elected, an auditor of the Government companies could be construed to have held an office of profit in the Government of India within the meaning of article 102(1) (a) of the Constitution. It was held there that the elected person was disqualified and that he so held an office of profit. Discussions there turned on the provisions of section 224 of the Companies Act which empower every company to appoint an auditor, but in case of a Government company an auditor was not appointed under section 224 of the Act but appointed under section, 619 (2) of the Act. It was there held that on the analysis of those provisions the appellant was appointed an auditor of Durgapur Projects Limited and the Hindustan Steel Limited by the Central Government and was removable by the Central Government. The Comptroller and Auditor-General exercised full control over him and his removal was made also by the Central Government though he was paid by the company. On th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed an unregistered company also. This case is also an authority on the point, now well settled, that a company under s. 153(6) of the old Companies Act means any company liable to be wound up under the Act and an unregistered company was liable to be wound up under s. 271 of the old Act see the observations of Bhargava, J. at p. 782 of that report. The other point on which this case is also an authority is that under the general law it was held that an application under s. 153 of the old Companies Act relating to an unregistered company could be filed in the High Court to whose jurisdiction the company has submitted or made itself amenable or within whose jurisdiction the principal place of business of such company was situated. See, the observations of Bhargava J. at pp. 782-783 of the said Report. On the strength of this proposition, Miss Uma Banerjee has submitted that the company itself is making this application before this court and therefore has submitted to the jurisdiction of this court. She also with considerable force has submitted that the firm of J. S. Desai Co. the unsecured creditors who are opposing the scheme on the ground of jurisdiction have themselves applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any Law but is comparable to section 404 of the English Companies Act, 1948. 63. There are two other decisions on which Miss Banerjee had relied. One is (11) In re Strauss and Company Limited, AIR 1937 Bom. 15, where Ran-gnekar, J. considering the old sections 270 and 271 of the Companies Act, 1913 reached the conclusion that the words shall include would not exclude a foreign company not registered under the act and that such company fell within the expression unregistered company and that the High Court had Jurisdiction to wind up an unregistered foreign company irrespective of the number of its members under sections 270 and 271 of the then Companies Act. That case is also an authority for the point that the mere fact that the order for winding up of such a company had been made by a competent court of the place of the company's incorporation could not make any difference to the jurisdiction of the High Court here. The other case is (12) In re Travancore and Quilon Bank Limited, reported in AIR 1939 Mad. 398. This case is a clear authority for the proposition that a foreign company is liable to be wound up as an unregistered company within the meaning of sec. 271 and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . C. Sen's argument that a foreign company could not be worked under a scheme or wound up on the strength of the proviso of section 589(2) of the Companies Act. I accordingly overrule Mr. Sen's contention. 66. I need now only notice the final authority of the Supreme Court in (13) Bajah of Vizianagaram v. The Official Receiver and Official Liquidator, reported in AIR 1962 Supreme Court 500. There the Supreme Court lays down the law to be as follows, at page 603 of the report: The courts of a country dealing with the winding up of a company can ordinarily deal with the assets within their jurisdiction and not with the assets of the company outside their jurisdiction. It is therefore necessary that if a company carries on business in countries other than the country in which it is incorporated, the court of those countries too should be able to conduct winding up proceedings of its business, in their respective countries. Such winding up of the business in a country other than the country in which the company was incorporated is really an ancillary winding up of the main company whose winding up may already have been taken up in that country or may be taken up at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... just and equitable to wind up a company and also for analogous reasons of business and administrative difficulty, a scheme or compromise or arrangement with the creditors is a matter germane to the conduct of the business of the company. It is, therefore fundamental in Company jurisprudence that the law of the place of business should govern and regulate the company's business in this respect. Indeed, if a foreign company is allowed to do business in this country and keep the creditors at bay and contend that the unpaid creditors cannot petition for the winding up of the business of such foreign companies, or formulate a scheme or compromise or arrangement for payment then the situation will not only be discriminatory, intolerable, in law. Both common sense and logic support that argument. Miss Banerjjee on this point relies on two decisions-one of the Privy Council and the other of the House of Lords. She relies on the decision of (4) State aided Bank of Travancore Ltd. -v- Dhrit Ram. 69 Indian Appeals I, and particularly on the observations of Lord Atkin occurring at pp. 7. 8, and 9 which are as follows: It is conceded, however, that by the law of Travancore the order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... word to use. But what does it include or exclude ? If a corporation exists for no other purpose than to assume the assets, liabilities and powers of another company, what sense is there in our recognizing its purposes of its existence and give effect to them accordingly. If, for reasons of comity, we recognize the new company as a juristic entity, neither the Greek Government, the creator, nor the new company, its creature, can complain that we too clothe it with all the attributes with which it has been invested. Thus and thus alone, as it appears, justice will be done. Lastly Viscount Simonds observes at page 526 in 1958 A.C. as follows: Clearly the obligations in English law (the proper law of the contract) could not be affected by a Greek law which purported to vary its terms. Lord Tucker in his speech in the National Bank of Greece and Athens S. A. v. Metliss, 1958 AC 509 at pages 529 to 530 quotes with approval the observe ions of Denning, L.J. in the following terms: This was an English debt and the obligation to pay it, its quantum and the date of payment are all governed by English law which will not give effect to the Greek moratorium. Denning, L.J. (as he th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the English corporation on the ground that each corporation is a distinct entity, and that in such a case mere reason of the share-holding would not make it either the trustee or the agent of the foreign corporation the learned Editors go on to say in article 29 as follows: In so far as the conception of nationality is applicable to corporations, it depends upon the country of incorporation. A corporation incorporated under English law has British Nationality, irrespective of the nationality of its members; but an English corporation assumes an enemy character in time of war if controlled by persons resident in the enemy country, or adhering to the enemy. An English corporation remains subject to English law notwithstanding that its business and centre of administration may be abroad. 73. This last sentence represents the crucial point we are determining in this application and in support of that proposition the authority of (19) Attorney General v. Jewish Colonization Association, (1900) 2 QB 556, on appeal (1901) 1 KB 123 at pages 130 and 144, has been cited in Halsbury. 74. While on this point, it will be appropriate to refer to two other decisions, one, a recent Full ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remains to be considered whether the fact that the Company registered in England excludes the jurisdiction of this court. In my opinion, it does not. The provisions of the Indian Companies Act are substantially taken from the English Act; see per Peacock, C.J. In Re Agra and Masterman's Bank, 1 Ind. Jur. NS 335. And under the English Acts English courts have exercised jurisdiction to wind up companies formed in foreign countries or in India. 76. Again, after discussing certain apparently contrary dicta of Peacock, C.J., in the Agra Bank case, Wilson. J., at page 893 expressed his Lordship's views in this way: But those dicta must be read with their context, and so reading them. I think that the learned Chief Justice was speaking throughout of an English Company so formed, such as the one then before the court; and did not intend to deal with the very different case of a Company Indian in everything except registration; and section 194 seems to show that companies formed under an Act of Parliament or Letters Patent may register in India, and may do so for the purpose of being wound up. I am, therefore, of opinion that this court has jurisdiction to wind up this company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a creditor. A worker can also be a creditor on account of other dues for Provident Fund, gratuity, insurance or other allowances. But a worker qua worker is not a creditor . That being the legal position the worker does not come into this picture of a compromise or arrangement between a company and its creditors or a company and its members. A worker as such therefore, unless, an individual worker is a creditor, has no locus standi to intervene in a proceeding under section 391 of the Companies Act dealing with a compromise or arrangement between the company on the one hand and its creditors or members on the other. 80. Although I am of the opinion that the worker qua worker is outside the pale of section 391 of the Companies Act dealing with a compromise or arrangement only between the company and its members or creditors, the court, in considering the scheme proposed has, in my judgment enough discretion and power under sections 391 and 392 of the Companies Act to see that the scheme or compromise or arrangement works without avoidable hardship to the workers or employees and is bona fide in its working in that respect and in doing so the court in my view, can always consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was explained in the Statement of Objects and Reasons. In a judgment delivered on the 27th November 1956 the Supreme Court held that no retrenchment compensation was payable under section 25F of the Industrial Disputes Act, 1947 to workmen whose services were terminated by an employer on a real bona fide closure of business or when termination occurred as a result of transfer of ownership from one employer to another. Since then a number of undertakings have closed down or put up notices of closure for one reason or another. This has led and is likely to lead to a large number of workmen being rendered unemployed, without any compensation. In order to meet the situation which was causing hardship to workmen, it was considered necessary to take immediate action and the Industrial Disputes (Amendment) Ordinance (4 of 1957) was promulgated with retrospective effect from 1st of December 1956....... This was the position which existed prior to the decision of the Supreme Court. In the case of closure of business on account of circumstances beyond the control of employer the maximum compensation payable to workmen has been limited to his average pay for three months. If the under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this case; first, it had laid down that normally it would be for the employer to decide which of the employees should be retrenched. Secondly, there can be no doubt that the ordinary industrial rule of retrenchment is first come last go. And where other things are equal, this rule has to be followed by the employer in effecting retrenchment. Thirdly, that this rule should commence with the latest recruit and progressively retrench employees higher up in the list of seniority. Lastly, that this rule is not immutable and for valid reasons may be departed from. These considerations, however, again I say are not germane to this application but will be cogent and relevant at the stage of replacement of the labour and staff by the new transferee company. The Central Inland Water Transport Corporation Limited. If there be any industrial dispute, which I hope will be avoided by the good sense of all parties interested, then it will be for such Industrial Tribunal or such industrial proceeding to take cognizance or consideration of such facts. 84. The other point on this branch of the case, according to the contention of Mr. Roy for the Workers' Union, Assam followed by Mr. Achary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsport from Calcutta to Assam was in full swing but the picture has now totally changed for circumstances beyond the control of any party. It is not a question of proposing retrenchment of the staff of the Ghat establishment but in effect to really close down the company as a whole and to transfer its assets and liabilities to a new company set up by the Government of India. The learned Advocate General has referred to the decision of the Court of Appeal in the case of the employees of Bank of China (28/FJR/ 300) where it was held that any contract for payment of any large compensation in the event of retrenchment would not be relevant when the company went into liquidation. The real point of merit, however, on this point so far as the Government is concerned, is that the agreement with the Ghat staff has now become incapable of implementation as a result of the Indo Pakistan hostilities and the consequent closure of the company and that the notice of intention to close the Ghat establishment was given to the concerned Union nearly a year ago. 87. Here again in law and under Section 391 of the Companies Act when the Court is considering a scheme or even when the Court is conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preference and the ordinary shareholders, who are different classes. His second submission is there was no quorum at the meeting of members as only two members attended personally while the order of the court was quorum would be 5. His third submission is that there was no compliance with Rule 77 of the companies Rules because the decision was by show of hands and not by poll as required by Rule 77. His fourth submission was that there was no compliance with Forms 41 and 42 of the Forms prescribed under the companies rules. I am not inclined to accept any of these submissions. In the first place, there was no such protest or objection when the meetings were being held and in fact it has not been taken at any stage at all. These objections are now put forward before me in this court without any affidavit. Non-compliance with any of these points if any, and now urged must be deemed to have waived. Apart from waiver there are also other reasons which successfully meet these technical objections. The very fact that the minimum quorum was was said to be 5 itself would show that it was not contemplated that there should be separate meetings for ordinary and preference shareholders becau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e total absence of protest at all relevant time. In the minutes of the Chairman it was recorded that it was unanimously agreed by all those present that voting would be by show of hands by which the number and value of creditors including proxies would be ascertained. I accept these arguments of the learned Advocate General as a complete answer to these points raised by Mr. S. B. Mukherjee. 91. This disposes of all the major legal questions of significant importance raised in this application. What remains now to be considered is the scheme itself; what are its merits and demerits, whether such a scheme should be sanctioned by the court either as such or with modifications and if so, with what modifications. Under section 392 which is a new section introduced by the Companies Act, 1956 the court has been given large powers of supervising the carrying out of the compromise or arrangement and the court has either at the time of making such order or at any time thereafter the power to give such direction in regard to any matter or make such modifications in the compromise or arrangement. 92. Before analysing the different clauses of the scheme placed before the court it is nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s formed and incorporated on February 16, 1967 with an authorised capital of ₹ 4 crores. Mr. Sen's criticism is that this new Co. is taking over more liabilities than ₹ 4 crores. That is a matter which the new company will have to solve. It may expect improved business and it may also develop new services in routes and may also raise finances. That, in my opinion, in the present facts, is no ground for rejecting the scheme or compromise and in particular clause 1, thereof which I have just mentioned. 96. Clause 2 provides that the applicant company, The Rivers Steam Navigation Company Limited, will transfer to the new company all its properties and assessed the uncalled capital amounting to $117.585 or ₹ 24,69,285 will be paid in rupees by the Government of India to the existing company. The Government of India has suggested through its learned counsel Mr. D. K. Sen. modification of a minor nature of this clause which I accept viz., deletion of the words or ₹ 24.69,285 being the rupee equivalent of sterling mentioned therein. It must be noted that there is no objection from any of the parties to that deletion. Mr. S. C. Sen, learned counsel for J. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows that whoever has directly or indirectly agreed to accept such shares, no amount shall be payable to such creditors except by way of allotment of shares agreed to be taken in lieu of their dues. If parties agree to follow that course, it is not for this court to say that the agreeing party should not accept the shares of the existing company. In fact there is such an agreement with McNeill and Barry Limited. 100. Clause 6 provided that all other creditors of the existing company namely the unsecured creditors other than the State Bank of India, the Chartered Bank, the Government of India and the creditors mentioned in the preceding clause 5 shall be paid in the following manner, viz.: (a) All the creditors will be paid ₹ 5000/- or if the amount due to them is less than ₹ 5000/- than the full amount due, upon the sanction of the scheme by the court, within ten weeks from the date of such sanction or the 30th June 1967 whichever is later. (b) 66.2/3 per cent of the balance of their dues as appearing in the books of account of the existing company in the following instalments, viz. 33. 1/3 per cent before 30th June 1967 and the balance of 33.1/3 per cent on or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itable for its business on such terms and conditions as it, in its discretion, thinks fit. I do not think that the court in considering a scheme under section 391 of the Companies Act, can in law go beyond this direction. It will be unwise in my judgment to fetter the new company with any ad-hoc determination suggested by the learned counsel for the labour and the workers at one stage that all the employees of the existing company must be taken over en masse and in a body. Surely, the structure of the new company and its work will determine how many can be taken over and it will not be for this court either under the Companies Act or even under any other statutory law to impose that the whole staff and labour must be taken over bodily from the existing company to the new company. 104. I have already discussed the argument advanced on behalf of the labour and the staff and the guarantees or the assurances given on behalf of the Government of India and the new company. Subject to the actual number which can be taken over by the new company I shall make the following modifications under clause 7 of the proposed scheme and give the following directions : (a) The new company shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these circumstances and on an application dealing with scheme or compromise or arrangement under section 391 is therefore expressly provided in section 394(1) (iv) of the Companies Act, 1956 which provides inter alia that the court may, either by the order sanctioning the compromise or arrangement or by a subsequent order, make provision for the dissolution, without winding up, of any transferor company. The court therefore approves the 8th clause of the proposed scheme. The ninth and the last clause of the scheme provides: The court shall have the right to add, alter, vary of modify the above scheme and Shri B. B. Ghosh, the Chairman of the existing company is hereby authorised to accept such additions, alterations, variations and modifications as this Hon'ble court may be pleased to make on behalf of the company and all the creditors and members of the company shall be bound by such additions, alterations, variations and modifications as this Hon'ble court may think fit to make. This is consistent with section 392 of the Companies Act, 1956 and I approve the same. 106. With the modifications I have made and the directions I have given, I am satisfied that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1966. In such circumstances I cannot accept the criticism that there could be any later balance sheet or better balance sheet. In fact the latest balance sheet has been given and no other balance sheet could be available. 109. The third general criticism is that the purchase price paid by the Government to secure the control of the applicant company as was a nominal price of $ 1 for all that 500,000 ordinary shares of what is called River . Mr. Sen has criticised this part of the Government case which is embodied in clause B of the Memorandum of Agreement between the President of India and Inchcape Company and its subsidiaries like McNeill and Barry Limited, Ganges Transport and Trading Company Ltd., Rivers Steam Navigation Company Holdings Limited, and India General Navigation and Railway Company. I have found it difficult to appreciate Mr. S. C. Sen's criticism on the point when he said that the Government acquired these shares at an under - value at the cost of the creditors of the existing company. I am satisfied that this criticism has no merit. In the first place these shares were not quoted in the market either in India or United Kingdom. In the second place, the val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also needless to point out that the Government had already advanced ₹ 1.2 crores to the existing company till the end of 1964. Both the previous shareholders of the existing company till the end of 1964. Both the previous shareholders of the existing company and the Government were aware that the existing company could not survive unless large funds were made available to them. Indeed Government had to advance ₹ 60 lakhs between February 1965. when they acquired control over the company, and September 1965 when the company's business came to a standstill due to the Indo-Pakistan hostilities. In that context, therefore, the consideration paid to the previous shareholders for the acquisition of the control namely. $ 1 must be seen against the background of Government commitment to keep the company going. If that is taken into consideration there is no merit in the objection that this was an under-valuation at the cost of the creditors in general. I am therefore unable to uphold any of these three general criticisms made against the scheme. This disposes of all the points argued and placed before the court in this application. 110. For reasons stated and t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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